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Ahead of the Bell: Herbalife shares slide

NEW YORK (AP) -- Shares of Herbalife slid in premarket trading Monday after a report that it is the subject of a law enforcement investigation. The nutritional supplements distributor has been defending itself against a hedge fund manager's accusation that it is a pyramid scheme.

The New York Post reported that late Sunday night that that it found out about the investigation after the Federal Trade Commission released complaints against Herbalife from the past seven years. The FTC was responding to a Freedom of Information Law request by the newspaper. The agency's documents did not say whether the probe was criminal or civil, according to the Post's report.

A representative for Herbalife Ltd. could not be immediately reached for comment Monday.

The Wall Street Journal reported in early January, citing unidentified sources, that the Securities and Exchange Commission had opened an inquiry into Herbalife.

In December hedge fund manager William Ackman alleged that Herbalife was a pyramid scheme and that he was shorting the stock. Short-sellers make money when the shares they're betting against decline.

Herbalife has tried to refute Ackman's accusations, in January holding an analyst and investor meeting that detailed how its business operates and who its customers are. Ackman replied that Herbalife "distorted, mischaracterized, and outright ignored large portions" of his presentation.

The company has become a point of contention between several prominent Wall Street figures.

In a blowup on live television in late January, Ackman and billionaire investor Carl Icahn traded barbs over an old investment deal and Ackman's position in Herbalife. Speculation is rife that Icahn has a minor stake in Herbalife, but he has refused to comment on whether he holds a position or not.

Yet another investor, Dan Loeb of Third Point LLC, has disclosed an 8.2 percent stake in Herbalife, a vote of confidence in the company, while Greenlight Capital's David Einhorn, another prominent Wall Street figure, had raised concerns about Herbalife's business in May.

Herbalife's stock dropped $3.37 or 9.6 percent, to $31.70 before the market open. The shares have dropped 18 percent since Ackman disclosed in December that he was shorting the stock.